Sphere 3D: Fiscal 4Q14 Financial Results

(in $ million)	4Q13	4Q14	FY13	FY14
Revenue	–	9.5	–	13.5
*Growth*		NA		NA
Net income (loss)	(1.3)	(5.41)	(3.3)	(12.7)

Sphere 3D Corp. reported financial results for its fourth quarter and full year ended December 31, 2014.

“Since the conclusion of our merger with Overland Storage on December 1, 2014, we have integrated the expertise of our teams and are moving forward to accelerate the innovation and market adoption of our solutions in our three target product categories – application virtualization, virtual workspace infrastructure, and data management, retention and security,” said Eric Kelly, chairman and CEO. “We have a solid base business in data management, retention and security that provides the foundation from which we plan to extend our reach into the large and growing virtualization market with our highly-differentiated application virtualization and hyper-converged appliance offerings. While we are at the early stages of ramping up sales of our virtualization products, we have already achieved several important milestones, including successes in the education and healthcare industry, partnership with leading cloud providers and third party certifications from ISV’s. We look forward to reporting on our progress throughout the year.“

Fourth Quarter 2014 Financial Results:
The following financial results reflect contribution from the Overland Storage acquisition, for a partial period from December 2, 2014 through December 31, 2014, which contribution is not reflected in the comparative results for the prior year.

Net revenue was $9.5 million.
Product revenue was $8.6 million. Disk systems and virtualization revenue was $4.9 million. Tape drives, media, and tape automation revenue was $3.7 million. Service revenue was $0.9 million.
Gross margin was 37.6%.
Operating expenses for the fourth quarter of 2014 were $8.4 million, including merger costs of $1.3 million.
Stock compensation expense was $0.7 million, compared to $0.8 million in the fourth quarter of 2013. Depreciation and amortization was $1.1 million in fourth quarter of 2014, compared to $0.1 million in the fourth quarter of 2013.
Net loss was $5.4 million, or a loss of $0.20 per share, compared to a net loss of $1.3 million, or a loss of $0.07 per share in the fourth quarter of 2013.
On a non-GAAP basis, adjusted EBITDA was a loss of $2.1 million, compared to an adjusted EBITDA of a loss of $0.50 million in the fourth quarter of 2013. Adjusted EBITDA is presented as net loss before interest expense, income taxes, costs associated with the acquisition of Overland, depreciation and amortization and share-based compensation.

Full Year 2014 Financial Results:

The following financial results for the year ended December 31, 2014 reflect contribution from the Overland Storage acquisition for a partial period from December 2, 2014 through December 31, 2014, which contribution is not reflected in the comparative results for the prior year.

Net revenue for 2014 was $13.5 million.
Product revenue for 2014 was $12.2 million. Disk systems and virtualization revenue was $8.5 million. Tape drives, media, and tape automation revenue was $3.7 million. Service revenue was $1.3 million.
Gross margin for 2014 was 39.6%.
Operating expenses for 2014 were $17.4 million, including merger costs of $2.2 million, compared to operating expenses of $3.3 million for 2013.
Stock compensation expense was $3.3 million for 2014, compared to $1.2 million for 2013. Depreciation and amortization for 2014 was $3.5 million, compared to $0.2 million for 2013.
Net loss for 2014 was $12.7 million, or a loss of $0.53 per share, compared to a net loss of $3.3 million, or a loss of $0.19 per share for 2013.
On a non-GAAP basis, adjusted EBITDA (presented in the same manner described above) for 2014 was a loss of $3.4 million, compared to an adjusted EBITDA of a loss of $1.9 million in 2013.
Cash and cash equivalents at December 31, 2014 were $4.3 million, compared to cash of $5.2 million at December 31, 2013. The company had $4.9 million outstanding under its credit facility and $19.5 million outstanding under its notes from related parties at December 31, 2014. Subsequent to December 31, 2014, the company received $5 million under its related party credit facility.

Recent Business Highlights:

Corporate:

Sphere 3D’s acquisition of Overland Storage was completed on December 1, 2014.
Prior to completing the Overland Storage acquisition, Overland was able to deliver its previously announced commitment to reduce annualized operating expenses. It exceeded the original $20 million target by 15%, which resulted in a total $23 million savings in 2014.

Application Virtualization:

The company recently announced a strategic collaboration with Microsoft to enable customers to subscribe to Glassware 2.0 in the cloud. This will create new deployment options and business models for customers needing to virtualize their legacy and current Windows-based applications.
Glassware 2.0 has passed the requirements of a leading global learning company to provide delivery of assessment tests on Google Chromebooks. This global learning company provides a range of education products and services to institutions, governments and direct to individual students, including the delivery of millions of online assessment tests to K-12 schools every year.

Virtual Workspace Infrastructure:

Using Login VSI industry-standard testing, V3 virtual desktop appliance demonstrated performance compared to publicly-released performance reports from other hyper-converged and traditional solutions providers.
Channel approach to selling our Virtual Workspace Infrastructure includes the recent inclusion of a premier U.S.-focused value-added distributor, which is one of the largest IT distributors in the world.

Data Management, Retention and Security:

We introduced the RDX+ software technology that is designed to increase storage capacities by 50% and more, providing our existing RDX QuikStor backup appliance installed base with future expansion to larger than 2TB capacity. Unlike other competitive RDX solutions with a maximum of 2TB capacity, the firm expecst RDX+ enabled backup appliances to be differentiated with backward and forward compatibility with RDX QuikStor appliances, and to protect customers’ investments as disk drive capacities grow beyond 2TB.
RDX technology achieved a new milestone that demonstrates its global reach with over 1EB of storage capacity shipped to date on more than 700,000 RDX systems.